Swiss Franc slides to two-week low as oil-driven Fed hike bets boost USD

The Swiss Franc (CHF) experienced a significant decline, reaching a two-week low, against the US Dollar (USD) due to speculation surrounding Federal Reserve interest rate hikes driven by oil prices. This trend intensified throughout Thursday's Asian trading session. The economic context supported the bullish USD, particularly amidst concerns over inflation risks arising from volatile oil prices and the ongoing US-Iran conflict.

President Donald Trump maintained that the US has total control over the Strait of Hormuz, while Iran has vowed to keep it closed until all demands are met. Furthermore, attacks by Iran-backed Houthis in Yemen on vessels in the Red Sea and Bab el-Mandeb Strait added to war-risk premiums, which continue to buoy crude oil prices. HSBC analysts warned that uncertainties surrounding the resolution of the Middle East conflict have caused oil prices to fluctuate wildly, ranging from $100 to below $80 per barrel.

This volatility has significant implications for the global economic outlook. The US Federal Reserve's hawkish stance is reinforced by traders' perception that higher energy prices will reignite inflationary pressures, compelling the Fed to maintain its aggressive policy. According to the CME Group's FedWatch Tool, there is an 80% probability that the Fed will increase interest rates at least once by year-end.

This, combined with geopolitical tensions, bolsters the safe-haven status of the USD. Investors now observe key economic indicators from the US, including the Producer Price Index (PPI) and weekly initial jobless claims data, as well as speeches from influential Federal Open Market Committee (FOMC) members. These factors, along with upcoming geopolitical developments, provide short-term trading opportunities for the USD/CHF pair.

Despite these supportive factors, the overall trend for the CHF suggests an upward trajectory. The table below displays the percentage change of the Swiss Franc against major currencies this week, with the CHF showing the strongest performance against the New Zealand Dollar.